Early Stage Funding

Patterns of Entrepreneurship
Chapter 6
Funding Sources
copyright 2003 Jack M. Kaplan
Personal and self Funding
Angel Financing
Friends and Family
Bank Loans
Programs of SBA and Government Loans
Where to Find Funding

Early Stage Funding
copyright 2003 Jack M. Kaplan
Personal Funding
Investing your own money - sweat equity
for stock
Offers greatest return, if successful
Investors and venture capital sources
usually require it
Your personal funds can be treated as
equity or debt
copyright 2003 Jack M. Kaplan
Moonlighting
Founder still working a regular job
Income used to support the entrepreneur
during needed cash flow
When the venture begins paying as well or
better- entrepreneur leaves job

copyright 2003 Jack M. Kaplan
Bootstrapping
Often applied to a current business that can
reduce costs from current operation
Usually overlooked as a source to
entrepreneurs
The entrepreneur becomes more efficient
and cost conscious
Credit Cards
Entrepreneurs should ensure that they can
increase their borrowing limit through
Credit Cards.
Can Be Dangerous !
copyright 2003 Jack M. Kaplan
copyright 2003 Jack M. Kaplan
Friends And Family
The most popular source of funds for
startup capital
Friends and family are not as worried about
quick profits as professional investors
Usually they do not investigate the business
and are not familiar with all the risks
The best method is to provide the same
disclosure to a friend as you would a
investor

copyright 2003 Jack M. Kaplan
Well-off individuals with money to invest
Good prospects get funded
Need good contacts - contact Columbia
Business School- Lang fund.
Angel Networks. Fees range from $150-
$300
garage.com assists startups.Call (800) 577-
3838 (lists 20 networks nationwide)
Angels
copyright 2003 Jack M. Kaplan
SOURCES OF CAPITAL USED IN START-
UP
73%
31%
18%
16%
10%
4%
2%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Personal Savings
Bank Loans
Family
Mortgaged Property
Friends
State/Federal Guaranteed Loans
Venture Capital
Bank Loans
copyright 2003 Jack M. Kaplan
Many companies take loans from
commercial banks.
Secured loans
Unsecured loans

copyright 2003 Jack M. Kaplan
Bank Loans
Prepare a loan Proposal
Summary Page
Management team Profiles
Business Description
Financial Projections
Purpose of Loan and how spent
Amount required
Repayment Plan

copyright 2003 Jack M. Kaplan
How to Apply for a Bank Loan
Prepare a loan Proposal
The four Cs of a loan request
Character
Cash Flow
Collateral
Contribution

copyright 2003 Jack M. Kaplan
Building a Relationship with a
Banker
Issues to Avoid
Picking the wrong bank and banker.
Being ineffectively prepared to make loan
requests.
Being overly Optimistic.
Failing to recognize weaknesses.


copyright 2003 Jack M. Kaplan
Programs of the SBA (Government
funding)
Most of the SBA loans are made by lenders(
commercial Banks, savings and loans,
Insurance companies)
Guaranteed by the SBA
Average loan is $100,000 plus-with a
maturity of 10 years

copyright 2003 Jack M. Kaplan
The program allocates in excess of 50 million
annually for scientific innovation
Phase 1-awards up to $100,000 for the purpose
of investigating the feasibility of an innovation
Phase 11 The report is reviewed and if
feasible, an award up to $1,000,000
Phase 111- Funding for commercialization must
come from private sources


SBIR Program
copyright 2003 Jack M. Kaplan
Licensed by the SBA - Invest locally and
have industry preferences
Limited to companies under $2 million in
earnings and less than $6 million in net
worth
Have both debt and equity investments
Do not take a majority position in the
company
Small Business Investment Companies
copyright 2003 Jack M. Kaplan
State programs
Most states target funds:
Penn. Ben Franklin Technology Centers make
grants up to $100,00
N.J. New Jersey Economic Development Agency,
loans and royalty agreements
Advantages:
No repayment unless the project succeeds and no
equity requirements
Disadvantages:
Pay royalties on sales
State Development programs